DEBUNKING MYTHS ABOUT LOAN AGAINST PROPERTY
A loan against property (LAP) is a versatile financial tool that allows individuals to unlock the value of their real estate assets while retaining ownership. However, like any financial product, there are several myths surrounding loans against property that often lead to misunderstandings. Let’s dive into some of these myths and debunk them to provide a clearer understanding of this borrowing option.
Myth 1: Losing Ownership of Property
One of the most prevalent myths is that taking a loan against property means losing ownership of the property. In reality, when you opt for a LAP, you retain ownership of the property. The lender only holds a lien on the property’s title as collateral for the loan. Once the loan is repaid, the lien is lifted, and you regain complete ownership.
Myth 2: Restricted Use of Pledged Property
A prevalent misconception about LAP is that the property used as collateral cannot be inhabited or utilized while the loan is active. This belief is unfounded. As long as you meet your EMI obligations punctually and uphold your repayment commitment, there are no restrictions on using the pledged property.
Myth 3: Only for Residential Properties
Contrary to popular belief, loans against property are not limited to residential properties. While residential properties are commonly used as collateral, commercial properties, vacant land, and even industrial properties can also serve as collateral for LAP. Lenders consider various property types, making this option versatile for different needs.
Myth 4: Strict Eligibility Criteria
It is often believed that LAP has stringent eligibility criteria, making it difficult to qualify. While lenders do evaluate factors such as property value, the applicant’s income, and repayment capacity, the eligibility criteria are not overly restrictive. Many lenders offer customized loan solutions to fit diverse financial situations.
Myth 5: Only for Business Owners
Another misconception is that loans against property are exclusively meant for business owners. In reality, both salaried individuals and self-employed professionals can avail LAP. Whether you need funds for personal or business purposes, a loan against property offers a viable solution.
Myth 6: Lengthy and Complex Approval Process
The perception of a cumbersome and time-consuming approval process deters some individuals from considering LAP. However, lenders have adopted streamlined processes, including digital documentation and verification, to expedite approvals. Online platforms and dedicated customer support make the process smoother and more accessible.
Myth 7: High Interest Rates
While interest rates for LAP might be slightly higher than those for home loans, they are often lower than those for unsecured loans like personal loans or credit cards. Additionally, the interest rates are influenced by various factors, including the applicant’s credit history and the property’s value.
Myth 8: Limited Usage of Loan Amount
Some individuals believe that the loan amount obtained through LAP can only be used for specific purposes. In reality, borrowers have the flexibility to utilize the funds for a wide range of purposes, such as funding business expansion, debt consolidation, education expenses, medical emergencies, or even buying another property.
Myth 9: Full Property Value Equals Full Loan Amount
There’s a misconception that a loan against property allows borrowing up to the complete value of the property. However, this notion is clarified by the Loan to Value (LTV) ratio. This ratio signifies the proportion of the property’s value that a lender can fund through a loan. When applying for a Loan Against Property, it’s common for applicants to assume they can secure a loan equal to 100% of the property’s market value. In practice, the borrower’s eligibility for a loan is influenced by the property’s valuation. Lenders typically approve loans ranging from 70% to 80% of the property’s value. This consideration accounts for various factors such as property infrastructure, age, geographic stability, and more during the property evaluation process. Thus, the loan amount is intricately tied to the assessed worth of the property.
Myth 10: High Income Necessary for LAP Application
Individuals within moderate income ranges can also apply for a Loan Against Property. Different lenders stipulate distinct minimum income criteria for both salaried and self-employed applicants. Thus, if your income isn’t exceptionally high, you can still bolster your chances by maintaining low liabilities and ensuring timely repayment of ongoing EMIs. By demonstrating your ability to meet your repayment commitments, you can build the lender’s confidence. Consequently, whether you belong to a high or moderate income group becomes less significant as long as your capacity to repay the loan is well-established.
Myth 11: Limited Tenure of LAP
LAP’s tenure can extend up to 20-30 years. This extended duration provides borrowers with the convenience of managing EMIs without unnecessary stress.
Myth 12: LAP is not Safe
If you have certainty in your credit score and repayment capacity, there’s no reason to view pledging collateral for LAP as unsafe. When compared to alternative loan choices, LAP stands out with numerous advantages, including a reduced interest rate, an extended repayment period, and the potential for a top-up loan (provided you possess the means to repay the specific loan sum).
CONCLUSION
As with any financial decision, it’s crucial to separate fact from fiction when considering a loan against property. By dispelling these common myths, individuals can make informed choices about utilizing their property’s value to meet their financial needs. Loans against property offer a versatile and accessible borrowing option that can be tailored to suit a variety of situations and goals.
TO KNOW MORE ABOUT LOAN AGAINST PROPERTY, CONSIDER READING-
COMPREHENSIVE GUIDE ON LOAN AGAINST PROPERTY
